ED Releases Perkins Wind-Down Dear-Colleague Letter

October 12, 2017 · by mlivolsi · Spark Notes

October 6, 2017

Written by Wes Huffman (whuffman@wpllc.net)

The U.S. Department of Education today released a dear-colleague letter regarding the wind-down of the Federal Perkins Loan Program. It provides information on the expiration of authority to make new Perkins loans, the distribution of assets of institutions’ Federal Perkins Loan Revolving Fund, and the assignment of Perkins Loans to the U.S. Department of Education. The full letter is available online.

The letter is very similar to other DCLs from the Department of Education on the expiration of Perkins Loans. If Congress were to act to extend the Perkins Loan Program, the Department would update its guidance. 

As previously indicated, the Department of Education is planning to use something very similar to the Excess Liquid Capital (ELC) process for the recall of the federal share of Perkins funds.  An excerpt from today’s DCL is below:

The Extension Act amended HEA section 466(a) to require each Perkins Loan Program participating institution to return to the Department the Federal share of the institution’s Perkins Loan Revolving Fund with the expiration of the authority of institutions to make Perkins Loan disbursements.  Since institutions are permitted to make subsequent disbursements to eligible borrowers through June 30, 2018, the Department will begin collecting the Federal share of institutions’ Perkins Loan Revolving Funds following the submission of the 2019-2020 Fiscal Operations and Application to Participate (FISAP), which is due October 1, 2018.

The process we will use to determine the Federal share of the Perkins Loan Revolving Fund that must be returned to the Department and the institutional share, which must be removed and returned to the institution, will be similar to the Excess Liquid Capital (ELC) process the Department currently has in place in accordance with HEA section 466(c).  It is important to note that the ELC process, and therefore the upcoming Perkins Loan Revolving Fund asset distribution process, account for changes in the Institutional Capital Contribution (ICC) matching requirements that have occurred over time, as well as any overmatching by the institution.  We will also take into consideration any Federal Capital Contribution (FCC) that had been previously returned by the institution to the Department, and any ICC that was previously returned to the institution.  We will not take into consideration unreimbursed cancellation amounts in determining the Federal share of the revolving funds to be returned to the Department because HEA section 465(b) prohibits the use of funds appropriated for FCCs from being used for cancellation reimbursement.

Because, as noted below, institutions may choose to continue servicing their Perkins Loans, the process of requiring the distribution of assets from the Perkins Loan Revolving Fund will continue on a regular basis, until such time as all of the institution’s outstanding Perkins Loans held by the institution have been paid in full or otherwise fully retired, or assigned to the Department.  Institutions that choose to continue servicing their outstanding Perkins Loan portfolios must continue to service these loans in accordance with the Perkins Loan Program regulations in 34 CFR part 674, and must also continue to report on their outstanding loan portfolio to the Department annually, using the FISAP.  An administrative cost allowance cannot be charged against an institution’s Perkins Loan Revolving Fund because institutions will no longer be advancing funds to students under the Perkins Loan Program after June 30, 2018.

The Department will provide more information on the distribution of the assets of institutions’ Perkins Loan Revolving Funds, including deadlines, prior to the October 1, 2018, FISAP submission deadline.   

Importantly, the letter notes institutions are NOT required to assign loans to the Department or liquidate their revolving funds due to the wind-down. In fact, schools will still lose all interests in the loans in such situations.  An excerpt is below:

Institutions are not required to assign Perkins Loans to the Department or liquidate their Perkins Loan Revolving Funds due to the wind-down of the Perkins Loan Program, however, institutions may choose to liquidate at any time in the future.  Institutions may continue to service their Perkins Loans (or contract with a third-party servicer for such servicing), and may assign both nondefaulted and defaulted Perkins Loans, or either, to the Department at any time.  However, in accordance with 34 CFR 674.50(f), when an institution assigns a loan to the Department, the institution loses all rights and title to the loan without recompense.  This means that the institution will not receive any share of the loan, including any amounts collected on the loan by the Department.

While this letter does offer some new deals on a potential wind-down process, it is routine and expected and has no impact on the debate over the Perkins Loan Extension Act of 2017 (H.R. 2482/S. 1808). If the extension were to pass, the Department would provide new guidance.  Perkins Loan supporters must continue to urge their representatives in the House and Senate to push for an extension of this important program.  Additional information on COHEAO’s advocacy efforts is available online

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